Morning Report: Small Business Optimism Improves

Vital Statistics:

	Last	Change
S&P futures	4,118	-1.4
Oil (WTI)	60.14	0.44
10 year government bond yield		1.66%
30 year fixed rate mortgage		3.27%

Stocks are flattish this morning after good economic news out of China. Bonds and MBS are up small.

The consumer price index rose 0.6% MOM and 2.6% YOY, which was a touch above expectations. Ex-food and energy, it rose 0.3% MOM and 1.6% YOY, which is more or less in line with where it has been the past several years. This reading was a relief to the bond market given that the producer price index was super-hot. Remember, the Fed is targeting an average rate for inflation, so it needs to see inflation above its 2% target for a long time to get the average up. Given that we have seen persistently low inflation since 2008, even with unemployment rates below 4%, the Fed is going to be less trigger-happy raising rates. We have roughly 10 million jobs to get back, and that is the top priority for the Fed.

Small Business Optimism rose 2.4 points to 98.2, according to the NFIB. The most interesting stat from the report is that 42% of business owners reported being unable to find qualified workers to fill open positions, which is a record. From the report:

Thirty four percent have openings for skilled workers (up 1 point) and 19 percent have openings for unskilled labor (up 3 points). Owners are frustrated with mounting unfilled job openings as qualified and willing candidates are scarce. Fifty percent of the job openings in construction are for skilled workers, down 1 point. Fifty-five percent of construction firms reported few or no qualified applicants (down 6 points) and 38 percent cited the shortage of qualified labor as their top business problem (up 3 points).

On the inflation front, 26% of respondents reported increasing average selling prices. Price hikes were most prevalent in wholesale and retail. Overall, improvement in business conditions will be highly dependent on the course of the virus. If we see no more flare-ups and most of the population gets vaccinated over the summer, then we should see a pretty hefty recovery going into the back half of the year.

Loans in forbearance fell again last week, according to the MBA. Total forbearances fell 24 basis points to 4.66% of servicers’ portfolio, or about 2.3 million homeowners. This drop was one of the largest decreases in the survey’s history. The biggest drop was in Ginnie Mae loans, which fell from 6.78% to 6.33%.

Loan delinquencies fell to a 10 month low, according to CoreLogic. 5.6% of loans were at least 30 days down in January 2021, an increase of about 210 basis points from a year ago. 3.1% of mortgages are 120 days plus, but the number in foreclosure is only 0.3%. The low foreclosure number is artificially low due to the foreclosure moratorium, and we will see those numbers jump when it is lifted, probably some time in 2022.